Author: Jeri Ann

It’s less than a week until the May 17, 2021, deadline for filing individual tax returns. Even with the one-month extension granted this year to everyone, you might still be scrambling to get your records and filing in order. It might seem overwhelming, but there is another way: you can get more time!

File Form 4868 for an automatic filing extension until October 15, 2021.*

Notice we underlined and italicized the words “filing extension”? That’s because you still need to PAY any taxes you owe by May 17 or potentially face a payment penalty and interest charges.

Why pay without filing? Filing penalties are often higher than non-payment penalties. So, make an estimate (there are numerous online calculators to assist you) of what you might owe and pay that to avoid those penalties if you can, but definitely file for the extension if you simply don’t think you can get the filing done in time.

Do you need to file your taxes on time or get an extension if you expect a refund? Technically no, but you can lose your refund if you wait too long and for some taxpayers there are certain tax elections that must be made by the filing deadline.

In summary, if you are struggling to get your filing done, it’s really in your best interest to file an extension and take some of the pressure off.

*(If you are an American citizen living abroad, your regular deadline is June 15, 2021 and you can file Form 2350 for an extension until December 15, 2021.)

** Credit to Steve Miller for this post’s title — love the song “Fly Like an Eagle” 🙂

The extended tax filing deadline for your personal taxes continues to creep up on us; that extra month is down to only an extra two weeks. With that in mind, it is a good moment to make sure you don’t fall victim to some common mistakes that can cost you money, time, and hassles.

Getting your filing filed:

• Use electronic filing: the tax software applies all updates to the law, checks for available deductions and credits, prompts you for required info, and does the calculations. This is a way to reduce the chance of errors. IRS Free File is a good option if your return is straightforward.
• Also, the pandemic has slowed processing time for paper returns by the IRS, so e-filing should be faster for processing any refunds.
• If filing on paper, make sure you have the right address. Use this link to double check.
• Keep a copy for your records. If you have an issue, it could be invaluable.

 

Don’t make silly mistakes! Every year, droves of taxpayers face delays and possible penalties resulting from simple slips.

• Get names and Social Security numbers right, including dependents. If someone doesn’t qualify for an Social Security number, provide their Individual Tax Identification Number.
• Double check your bank routing and account numbers for direct deposit.
• Sign and date the return. Yep, this mistake happens a lot. If filing jointly, both spouses must sign and date the return.
• Answer the virtual currency question! It’s rather new and is an easily overlooked item on the Form 1040.
• Report all taxable income. Don’t forget about those 1099s etc.

Lastly, if things are just going wrong and you can’t get your filing together in time, get an extension rather than pay a late filing penalty. You can easily request an automatic extension to October 15 on Form 4868 or on Free File. Remember though, you still have to PAY by May 17, 2021 or face potential fines and penalties.

Did you need to tap your IRA, 401(k), or 403(b) due to financial setbacks suffered due to the pandemic before December 31, 2020? Then you need to pay careful attention to the tax implications and report it to the IRS even if you don’t need to file a federal income tax return.

(By the way:  We are assuming here that you were qualified to do so; there are specific criteria for that that can be found at this site: IRA Coronavirus related relief for retirement plans FAQ.)

The good news is that you are able to avoid the 10% penalty tax for early withdrawal if you were under 59-and-a-half years old at the time of withdrawal, and if you repay the withdrawal within three years, you can avoid income tax on it … sort of.

The “sort of” disclaimer above is that you do have to recognize the income and pay applicable taxes before the repayment, but:

1. You can spread the income recognition over three years in equal portions to soften the blow.
2. If you make a repayment, you can file an amended return that excludes that income up to the amount recognized.

For example, if you took a distribution of $30,000 in 2020, you could elect to recognize the full amount as income in 2020 or recognize $10,000 in each of 2020, 2021, 2022. If you were to repay $12,000 in 2021 to any qualified retirement plan, you can file an amended 2020 return to exclude the $10,000 of income recognized (and taxed) in 2020 and the remaining $2,000 would apply to 2021 so that you only recognize $8,000. Conversely, if you repaid $21,000 in 2021, you would be able to amend 2020, exclude $10,000 for 2021, and then the remaining $1,000 for 2022.

Other key points:

• Your retirement plan was required to report the distribution on a 1099-R but is not required to treat it as a Coronavirus related distribution. You can still report it as a Coronavirus related distribution on Form 8915-E.
• Retirement plans are not required to amend their terms to accept repayments (which technically are treated as rollovers). In this case, you’ll need to find another plan to pay into to make a “repayment” for tax purposes.

This situation is a bit tricky, so be careful and make sure your tax preparer is paying close attention.

Did you file your 2017 1040 federal income tax return?

No? You didn’t think you needed to as you were sure you didn’t owe taxes?

Did you double check that you might just be due a REFUND, particularly if you are a low- to moderate-income worker?

There might be cash sitting in government coffers for you and you might be about to lose it forever.

The IRS has sent out a notice that 1.3 million taxpayers who didn’t bother with that 2017 return are owed refunds.  That three-year deadline to claim any 2017 refunds expires on Monday, May 17, 2021. If you haven’t filed 2018 or 2019 either, they could still hold that money until you do so.

The Earned Income Tax Credit (EITC), which is refundable, is a key item giving rise to potential refunds for low- to moderate-income worker; it could be worth up to $6,318.

Thresholds in 2017 for EITC eligibility were:

• $48,340 for those with three or more qualifying children
• $53,930 if married filing jointly
• $45,007 for people with two qualifying children; $50,597 if married filing jointly
• $39,617 for those with one qualifying child; $45,207 if married filing jointly
• $15,010 for people without qualifying children; $20,600 if married filing jointly

There’s more information on the IRS website here.

Check your records, call your tax preparer*, and get those returns filed if you think you are eligible.

(*Cautionary note: Avoid any tax preparer who “guarantees” a refund, tries to base their fee on the refund, or requires that your refund must come to them directly instead of to your account.)

We’re just a little over a month away from the May 17 filing deadline … in the home stretch, y’all!

For those who are just starting the tax prep process, we’ve decided to gather all of the Tuesday Tax Tip posts into one handy-dandy article for easy reference, plus two VERY VERY IMPORTANT tax resource links (you’ll recognize them immediately).  Because the less time you have to spend hunting around for info, the better 🙂

 

 

The VERY VERY IMPORTANT resources:

• Internal Revenue Service (aka The Motherload and Final Say of All Things Tax – seriously, keep this one handy)
• 2020 Instructions for Schedule C

Tuesday Tax Tips:

• Home office deductions
• Meal expense deductions
• Finding a tax preparer
• 2020 unemployment benefits
• Tracking the status of your tax filing (and, fingers crossed, your refund!)
• And finally … How to keep a good mindset during the whole process

When the American Rescue Plan was signed on March 11, 2021 with provisions aimed at helping the bulk of the taxpaying public suffering the economic consequences, it created a bit of mess as some of those measures were retro-active to 2020.

The measure that created the most concern amongst taxpayers (and us tax preparers) was the exclusion of unemployment benefits from 2020 taxable income up to $20,400 for married filing jointly and $10,200 for all others for those with less than $150,000 in adjusted gross income.

The IRS has announced that it will take steps to automatically refund money later this year to taxpayers who filed before the changes and were eligible for the tax relief. Taxpayers will not need to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return.

So, you should double check that return if you’ve already filed to see if you need to refile, and if not, just be patient: they are on it.

So, you filed your taxes – congrats!

 

Are you expecting a refund?  Or do you need to verify your tax return was filed?

 

Are you the sort of person who eagerly tracks expected deliveries from the likes of Amazon and eBay?

 

Then, we have good news for you!

 

Did you know you can track your filing and refund status with Dude, Where’s my Refund? on the Internal Revenue Service website?

 

(Note: The “Dude” part is our attempt at cultural humor and not part of the official site name … yeesh, such a missed opportunity.)

 

This tool will provide you with a personalized date only after the return is processed and a refund is approved – usually within 21 days.

 

It is worth noting that the IRS is jammed because of last year’s extensions and the numerous legislative actions that have altered tax policy, so tax documents that were mailed in are taking longer to process.  If you are in a hurry for that refund and have yet to file, it may be advisable to file electronically.

 

The IRS site warns that delays could also result from errors in the return, identity theft, or fraud, so keeping an eye on the refund tracking tool may give an early alert that there are issues with your return.

 

This brings us to an unappreciated fact about the IRS: the agency is actually a great source of information. Their website is reasonably easy to search, and the publications are well-organized and straightforward.

 

It is tempting to chalk it up to the agency wanting to give you zero reasons not to pay your taxes.  But we prefer to view it as the agency’s way of making an irritating yet mandatory process as manageable as possible – including tracking your refund.

 

 

Last week, the United States Treasury announced an automatic extension for federal income tax filing and payments for the 2020 tax year to May 17, 2021.

 

First reaction for most of us was a combination of “Yay!” and “Whew!”

 

However, there are two important items to remember:

1. If you owe any estimated tax payments (including self-employment taxes), the deadline for those payments DID NOT CHANGE, and the payments are still due on April 15.
2. The U.S. Treasury decision did not extend deadlines for states’ income tax filing.  Some states have extended the filing deadlines, but some have not.  Check with your state tax agency for announcements of any changes.

 

But even with this extension, don’t relax for too long – May 17 will be here before you know it!  Contact us if you need help with compiling your paperwork and getting everything ready for filing.

 

 

As of this writing on the late afternoon of March 10, 2021, the House and Senate have just passed the American Rescue Plan Act (ARP) and shortly the president is expected to sign it into law. This bill includes many provisions that have major tax impacts for 2020 and 2021 tax returns.

A word of caution is merited as final guidance under IRS regulations does not exist for exactly how to include some items in your filing, but we suggest you start identifying key items that apply to your tax circumstances.

We’ll keep you apprised as things clarify. Below is a bullet-point list of headline items.

• Unemployment benefits: A retroactive tax provisions makes the first $10,200 of unemployment payments nontaxable ($20,400 in the case of a joint return, but only $10,200 per spouse) in 2020 for households earning less than $150,000.
  • Additional provision of a $300 weekly federal unemployment benefit through 6 September 2021
• Economic Impact Payments: Single taxpayers with AGI under $75,000 will receive a $1,400 refundable tax credit, while joint filers with AGI under $150,000 will receive $2,800.
  • In addition, taxpayers will receive $1,400 for each qualifying dependent (including adult dependents).
  • The credit will completely phase out at an income threshold of $80,000 for single filers and $160,000 for joint.
  • The Treasury is directed to issue this credit as an advance payment based on the information on 2019 or 2020 tax returns.
  • It may make sense to delay filing until after payments are disbursed.
• Child Tax Credit: Special rules for 2021 include an expansion of the credit from $2,000 to $3,000 per eligible child under age 18 ($3,600 per child under age 6). Starting in July, the Treasury will issue advance payments of 50% of the child tax credit based on 2019 or 2020 tax return information.
• Earned income credit: For 2021 only, the bill expands the eligibility and the amount of the earned income credit (EIC) for taxpayers with no qualifying children. The maximum credit amount for childless people will increase from $543 to $1,502. For 2021, taxpayers can use their 2019 income if it was higher than 2021.
  • The disqualified investment income limit has increased from $3,650 (2020) to $10,000 and will be adjusted for inflation.
• The act includes other tax changes, such as:
  • Refundability and enhancement of child and dependent care tax credit
  • An individual can receive an advanced premium tax credit (APTC) to lower their monthly health insurance payment (premium).
  • Increase in exclusion for employer-provided dependent care assistance
  • Extension and expansion of the Families First Coronavirus Response Act (FFCRA) paid sick leave and paid family leave credits
  • Extension of employee retention credit
  • Modification of the premium tax credit
  • Change to the tax treatment of targeted economic injury disaster loan (EIDL) advances
  • Exemption of student loan forgiveness from federal taxation through 2026
  • Expanded COBRA continuation coverage premium assistance credit

Many U.S. taxpayers opt to prepare and file their own return.  With the many challenges of 2020, though, you might be thinking of calling a tax preparer to handle your filing this year.  Here are some things to consider:

 

• Make sure the tax preparer has the fulfilled the requirements to prepare and file federal and state returns. At the minimum, all tax preparers should have an IRS Preparer Tax Identification Number (PTIN) for federal returns.  Each state will also have its own qualifications, which are listed in the state’s revenue department.
• Don’t just hire the first person you find. Schedule a phone call or meeting to get to know the preparer before signing an agreement.  Ask questions about critical things like background and experience, but also see how comfortable you feel about the conversation in general.
• Determine what level of tax preparation service you need. Is your return complicated enough to require a tax attorney?  Do you need someone who can represent you on the returns they prepare for you?  The higher the involvement level, the higher the fees you’ll pay — but also the higher your peace of mind in case you need extra support with your filing.
• Get a fee quote before agreeing to work with a tax preparer. Ask if the fee is fixed or a minimum – sometimes a tax preparer will offer a fee that includes a small amount of bookkeeping time, but you’ll have to pay more if it turns out a significant amount of bookkeeping work needs to get done to calculate the return accurately.
• Be careful of “ghost preparers” who will prepare your return but not sign off as preparer. In addition to this being a violation of IRS rules, it is a warning sign that the preparer isn’t properly competent and may be looking to scam you in other ways.
• Finally, DO NOT sign your tax return until you review everything carefully, including your routing and bank account number for direct deposit refunds. If something in the tax return seems off, ask!  Ultimately, you are responsible for the accuracy of your return, even if you pay someone to prepare it.

 

A good starting place on your search is the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications (https://irs.treasury.gov/rpo/rpo.jsf).  But don’t wait too long – the filing deadline is just five weeks away!